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Looking at the current state of the United States railroad carload market, the overall take from FTR Senior Consultant Larry Gross is that things have been relatively quiet in terms of year-over-year performance, with signs of improvement going forward.

Speaking at his firm’s recent transportation conference, Gross explained that based on data from the Association of American Railroads (AAR) the four-week moving average until just recently had been very quiet while the overall environment has been stable in terms of total railcars.

“There was some softness seven-to-eight weeks ago, and we seem to have recovered from that and are back in the black fairly consistently,” he said.

One thing that had been holding things back, though, he explained, was coal’s ongoing volume decline, saying that when coal is removed from the equation there is a divergence between total rail carloads and coal. The message being that coal is one of the things driving down total carload performance.

Another drag, according to Gross, is agricultural output, because when grain and coal are excluded from carload data, the sector’s total output looks much improved.

“It is obvious that this data provides a window into the industrial economy,” he said. The coal and agriculture situations are not reflective of the industrial economy and what is going on with overall performance.”

Year-to-date, Gross observed that the “heroes” for rail commodities have been petroleum and petroleum products, specifically crude by rail (CBR) and crushed stone, sand, and gravel, with the latter to an extent benefitting from CBR activity due to frac sand movements and some increased activity in the construction sector, too.

What’s more, he pointed out that most commodities are seeing annual gains, coupled with the fact that coal and grain volumes are showing slight improvements to a degree, with coal especially starting to see gains from more positive annual comparisons.

Also helping overall output, he said, are motor vehicles and equipment loadings, which have seen impressive traction over a four-week average with the outlook still improving.

Addressing agriculture and grain, Gross said “we have been waiting for this year’s harvest to come in with the drought the big story last year and so far is has not been as much of a rebound as we had hoped for; we still think grain is going to be there in Q4 from a net drag to a positive and total carloads will look better.”

Chemical loadings year-to-date were described as a “good story” by Gross and are where CBR and petroleum loadings are captured. But he cautioned that growth may not be as dramatic, because the annual comparisons now look to be more moderate and conditions have eased by about ten percent from the peak, not only because growth flattened out a bit, but also because of the tightening spreads of international oil prices which supports CBR and allows CBR to compete effectively.

“It is not being gloomy saying that; it is just saying it might not be the tremendous source of growth it was last year,” said Gross. “It is important for other commodity groups to continue showing strength like non-metallic minerals and automotive, which we expect to be a bright star and continue to provide a major boost.”

Forest products appear to be a mixed bag, according to Gross, with lumber expected to show growth with modest housing progress, but pulp and paper are being negatively impacted by secular changes due to ongoing technological advances as more people read newspapers and magazines on smart phones and tablets than print versions.

Shifting to rail service, Gross said that prior to the flooding in Boulder, Colorado, service had shown remarkable stability, but said it was an aberration, as the rail network has been stable and resilient in its ability to recover. And he added that dwell times are lower and railcars are moving more quickly through rail yards, which points to stability.

As for total cars, Gross said that railcars online are down by nearly three percent at a time when there is a relatively small increase in rail cargo.

“The story of improving productivity in the car fleet is good news for shipper and carriers but not for rail car suppliers,” he noted.

For all of 2013, Gross said FTR is calling for total carloads to be down 0.3 percent, excluding intermodal, and down 13.4 percent compared to pre-recession 2007. For 2014, it expects carloads to be up 3.0 percent, which would be down 10.8 percent compared to 2007.

“There is a long way to get back to where we were from a fixed cost, network, and locomotive standpoint, which means there should probably be a fair amount of capacity out there if volumes should begin to increase,” said Gross. “The big issue will be how fast that volume will increase and whether railroads can hire enough qualified crews. The relatively stable economic situation is very good for rail carloads, because railroads like stability and this has given the railroads the ability to fine tune their operations.”

About the Author

Jeff BermanGroup News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).

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